Yoohaa is an all equity, search and media company which currently trades at $40 per share, has a market beta of 2, expected EPS of $6 next year, and an annual ROE of 7.0%. There are 1 million shares of Yoohoo outstanding. Assume that the CAPM holds, the risk-free rate is 2% and the expected market risk-premium is 4%. 

Suppose that Yoohaa has a stable dividend policy (i.e., constant payout ratio).

(a) What is the expected return on Yoohaa?

What is the payout ratio.

What is the growth rate of earnings?

d) Buy Big Dividends (BBD) is a private equity firm that is considering a takeover bid for Yoohaa. If this offer is successful, BBD can adjust Yoohaa's payout policy at no cost. What is BBD should be willing to pay for Yoohaa stock per share?

Answer rating: 100% (QA)

a To calculate the expected return on Yoohaa using the CAPM formula ER Rf betaERm Rf Where ER Expect... View the full answer